History, Henry Ford and the minimum wage
By Michael M. Bates
web posted January 9, 2006
In 1914, Henry Ford made history. The auto manufacturer
established an unheard of $5.00 a day minimum wage in his
factories.
Former Chrysler chairman Lee Iacocca, also known as I-ka-
zizzle in a TV commercial in which he plays straight man to the
redoubtable artiste Mr. Snoop Dogg, wrote in Time Magazine
that Ford "shocked the world with what probably stands as his
greatest contribution ever: the $5-a-day minimum-wage scheme.
The average wage in the auto industry then was $2.34 for a 9-hr.
shift. Ford not only doubled that, he also shaved an hour off the
workday."
Whether that was Henry's greatest contribution is questionable.
Less uncertain is what his primary motivation was in raising
employee wages and reducing work hours.
It wasn't, as has been argued, because he wanted to establish a
solid-middle class to buy his product. Nor was it an act of
charity. In the magnate's own words, it "was one of the finest
cost-cutting moves we ever made."
Henry Ford was acting in his company's best interests. His
factories had been plagued with very high turnover rates and
excessive absenteeism. This was to be expected. Almost all jobs
(at least the ones I've had) are monotonous, but assembly line
work, performing the same procedure over and over all day
long, must be extraordinarily tedious. Many employees looked
for, and found, better alternatives.
Hiring replacement workers and training them were too
expensive. Something needed to be done.
The higher wage Ford offered made the jobs much more
attractive. Morale shot up, employee turnover sharply dropped,
and, most important from management's perspective,
productivity surged. Henry Ford was on his way to being a
billionaire.
Interestingly, advocates of increases in government-mandated
minimum wages or what's called the Universal Living Wage
(ULW) cite the Ford experience as a reason their proposals
should be adopted.
On its Web site, the National Coalition for the Homeless
includes a white paper on the ULW that enumerates the results
of Henry Ford's revolutionary move and then notes: "All of these
savings/benefits are possible today with the enactment of the
Universal Living Wage. The ULW will dramatically reduce
employee turnover."
But would it? If all employers are required to pay the same
minimum salary, what incentive would people have to stay where
they're at?
When Santa Fe, New Mexico was giving consideration to raising
the city's minimum wage in 2003, the 1914 pay hike was also
introduced as evidence that it was a good idea. On this New
Year's Day, the minimum wage paid to most employees in Santa
Fe was raised to $9.50 an hour. Next year it'll go to $10.50 an
hour.
The city's proposal had been challenged in court, but the lawsuit
was thrown out by the same judge who recently granted a
restraining order to a woman who claimed talk-show host David
Letterman was using coded words, gestures and eye expressions
to express his undying love over the airwaves. Such is the quality
of Democratic jurisprudence in parts of the Land of
Enchantment.
So has Santa Fe's increased minimum wage helped the working
poor? Not according to a study released last month by the
nonprofit Employment Policies Institute.
Authored by economics professor Dr. Aaron Yelowitz, the
research found that the likelihood of unemployment for
employees in Santa Fe went up by 3.3 percent. And for less-
educated workers the likelihood of unemployment was more
than double that. Moreover, workers put in fewer hours on the
job than prior to the legislated increase, with less-educated
employees again disproportionately affected.
One group that did benefit from the higher minimum wage was
unmarried high school employees. Significant evidence suggests
they displaced low-skilled adults.
Keep in mind that Dr. Yelowitz's research covers the period in
which the minimum wage was still set at $8.50 an hour. At the
higher rates, the results should be even more profound.
The people who were supposed to be helped are the very ones
who are hurt. The pesky law of unintended consequences strikes
again.
A genuine increase in wages has to be linked to greater
productivity, not the magic wand of government. Henry Ford
understood that. Maybe even I-ka-zizzle and Snoop Dogg do.
Unfortunately for workers with marginal skills, many lawmakers
don't.
Mike Bates (www.michaelmbates.com) is the author of Right
Angles and Other Obstinate Truths. This essay appeared in the
January 5, 2006 Oak Lawn Reporter.
Enter Stage Right -- http://www.enterstageright.com